There are plenty of ways to scam such a system. For example, you could create a phony investment fund which always collapsed at the end of the year creating a loss which hid your expenditures.
That might be true. I don't actually know how much more auditing of funds and brokerages than what goes on already would have to happen in order to prevent that sort of thing.
I don't think the problem is obviously insurmountable, though.
